Income Tax Appellate Tribunal - Ahmedabad
Gokul Overseas Ltd.,, Patan vs Assessee on 30 August, 2016
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'डी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" D " BENCH, AHMEDABAD
सव ी राजपाल यादव, या यक सद य एवं अ नल चतव
ु द , लेखा सद य के सम ।
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
And SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A.
No.1028/Ahd/2013
( नधा रण वष / Assessment Year : 2009-10)
M/s.Gokul Overseas बनाम/ The ACIT
29, Ambic Nagar Co- Vs. Patan Circle
op.Society Patan
Opp. GEB
Highway Road
Siddhpur - 384 151
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AACFG 9539 L
(अपीलाथ& /Appellant) .. ('(यथ& / Respondent)
अपीलाथ& ओर से /Appellant by : Shri Tushar Hemani, AR
'(यथ& क* ओर से/Respondent by : Shri Sanjay Kumar, Sr.DR
ु वाई क* तार ख /
सन Date of Hearing 21/07/2016
घोषणा क* तार ख /Date of Pronounce ment 30/08/2016
आदे श / O R D E R
PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER :
This appeal by the Assessee is directed against the order of the Commissioner of Income Tax(Appeals)-Gandhinagar dated 22/01/2013 for the Assessment Year (AY) 2009-10.
2. The relevant facts as culled out from the materials on record are as under:-
ITA No.1028/Ahd/2013M/s. Gokul Overseas vs. Asst.Year - 2009-10 -2- 2.1. Assessee is a partnership-firm stated to be engaged in the business of manufacturing of castor oil and its derivatives. Assessee filed its return of income for AY 2009-10 on 30/09/2009 declaring total income of Rs.43,94,110/-. The case was selected for scrutiny and thereafter the assessment was framed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") vide order dated 29/12/2011 and the total income was determined at Rs.1,40,58,810/-. Aggrieved by the order of Assessing Officer (AO), assessee carried the matter before the ld.CIT(A) who vide order dated 22/01/2013 (in Appeal No.CIT(A)/GNR/321/2011-12) upheld the order of AO and thereby dismissed the appeal of the assessee. Aggrieved by the order of the ld.CIT(A), assessee is now in appeal before us and has raised the following grounds:-
1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the disallowance of Rs.96,64,698/- u/s 10AA of the Act.
2. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of AO in excluding export turnover of Rs.17,64,95,304/- from the total export turnover of the appellant for the purpose of calculating deduction u/s 10AA of the Act.
3. Alternatively and without prejudice, if the export turnover is excluded from the computation, correspondingly identical amount may kindly be reduced from total turnover.
4. Alternatively and without prejudice, if the export turnover is excluded from the computation, correspondingly direct and indirect ITA No.1028/Ahd/2013 M/s. Gokul Overseas vs. Asst.Year - 2009-10 -3- expenditure relating to such export turnover may also kindly be excluded from the computation of the deduction u/s 10AA of the Act.
5. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.
6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in levying interest u/s.234A/B/C of the Act.
7. The learned CIT(A) was erred in aw and on facts of the case in confirming action of the ld.AO in initiating penalty u/s.271(1)(c) of the Act.
3. Before us, at the outset, ld.AR submitted that though assessee has raised various grounds, but the solitary issue which to be decided is with respect to allowing of deduction u/s.10AA of the Act. 3.1. During the course of assessment proceedings, AO noticed that assessee had claimed deduction of Rs.18,29,20,780/- u/s.10AA of the Act. On perusing the Profit & Loss Account, AO noticed that assessee had shown total Export turnover of Rs.3,43,39,26,561/- which included Export sales as supporting manufacturer (Rs.17,11,24,107/-), Sales to Export Oriented Units (EOU's) (Rs.33,13,920/-) and Sales to other "SEZ" (Rs.20,57,277/-). AO was of the view that deduction u/s.10AA can be claimed only on the direct exports made by the assessee unit and ITA No.1028/Ahd/2013 M/s. Gokul Overseas vs. Asst.Year - 2009-10 -4- not through any other entity or agency. AO was further of the view that deduction u/s.10AA of the Act is available to an assessee who manufactures or produces article or thing from own units and that deductible profits should be the profits and gains derived from exports made by the assessee. He further held as per the provisions of section 10AA, the "export turnover" means the consideration in respect of export by the Undertaking being the unit of articles or things. AO therefore concluded that the export sales made by the assessee as supporting manufacturer, sales to EOUs and other "SEZ" were not direct export of the assessee and therefore assessee was not eligible for deduction from the profits made of its sales. He accordingly recalculated the deduction u/s.10AA of the Act at Rs.17,32,56,882/- as against the claim of deduction of assessee of Rs.18,29,20,780/- and thus disallowed the excess claim of Rs.96,94,698/-. Aggrieved by the order of AO, assessee carried the matter before the ld.CIT(A) who upheld the order of AO and dismiss the appeal of the assessee by holding as under:-
"3.5. I have gone through the facts of the case and the law. The export turnover is specifically defined in Explanation 1(i) of the section itself. For ready reference, it is reproduced as under:-
Explanation 1: - For the purposes of this section -
(i) "export turnover" means the consideration in respect of export by the undertaking, being the Unit of articles or things or services received in or brought into, India by the assessee but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things ITA No.1028/Ahd/2013 M/s. Gokul Overseas vs. Asst.Year - 2009-10 -5- outside India or expenses. If any, incurred in foreign exchange in rendering of services (including computer software) outside India;
(ii) "export in relation to the Special Economic Zones" means taking goods or providing services out of India from a Special Economic Zone by land, sea, air, or by any other mode, whether physical or otherwise.
When the term has been clearly defined in the income-tax Act itself, there is no question to referring to any other Code or Act Clearly and undisputedly, the concept of deemed export under the Special Economic Zones Act is not incorporated in the scheme of exemption under section 10A of the Income-tax Act or similarly worded section 10AA of the IT Act. It is the settled position that the Income-tax Act is a self-contained code and the validity or correctness of the assessment has to be considered with reference to statutory provisions. The Income-tax Act refers to several statutes in different places and wherever required, provisions of such statutes are incorporated in the Act through reference or by incorporation. This is not the case in this section. When section 10AA, provides for exemption only on profits derived on export proceeds received in convertible foreign exchange, the Legislature never intended the benefit to be extended to local sales made by the units in the Special Economic Zone, whether as part of Domestic Tariff Area sales or inter-unit sales within the Zone or units in other Zones. In fact all Special Economic Zones are allowed to make 25 per cent sales to Domestic Tariff Area and the profit derived from such sales are not entitled to exemption. Exemption under section 10AA is specifically geared to profits on actual exports, that too, made against receipt of convertible foreign exchange.
I have noted that the provisions of section 10AA and section 10A are same as far as the definition of 'export turnover' is concerned. The Hon'ble Kerala High Court in the case of Electronics Control & Discharge Systems Pvt.Ltd. 245 CTR 465 while deciding the issue in respect of section 10A has observed the following:
ITA No.1028/Ahd/2013M/s. Gokul Overseas vs. Asst.Year - 2009-10 -6- "After hearing both sides and after going through the above referred provisions of the income-tax act and the provisions of the Special Economic Zones Act, 2005, we are unable to uphold the order of the Tribunal because the concept of deemed export under the Special Economic Zones Act is not incorporated in the scheme of exemption under section 10A of the Income-tax Act and it is the settled position that the income-tax Act is a self-contained code and the validity or correctness of the assessment has to be considered with reference to statutory provisions. It is not as if the Special Economic Zones Act, 2005 or the Foreign Exchange Regulation Act or the Foreign Exchange Management Act are not referred to in the income-tax Act. The Income-tax Act refers to several statutes in different places and wherever required, provisions of such statutes are incorporated in the Act through reference or by incorporation. It is not as if the Parliament is unaware of other statutes which have specific purposes inter-unit transfers in Economic Zones are treated as exports for the purpose of Customs Act and the Central Excise Act. However, when section 10A, provides for exemption only on profits derived on export proceeds received in convertible foreign exchange, the Legislature never intended the benefit to be extended to local sales made by the units in the Special Economic Zone, whether as part of Domestic Tariff Area sales or inter-unit sales within the Zone or units in other Zones. In fact all Special Economic Zones are allowed to make 25 per cent sales to Domestic Tariff Area and the profit derived from such sales are not entitled to exemption. Exemption under section 10A(3) is specifically geared to profit on actual exports, that too, made against receipt of convertible foreign exchange. We are of the view that if the provisions of the Special Economic Zones Act, 2005, are brought into extend the exemption on profits derived on inter-unit sale made by industries within the Export Processing Zone, the court will be re- writing the legislation which is exactly what the Tribunal has done. In fact, the unit which purchased components from the assessee must be manufacturing final products and being a unit in the Special Economic Zone will be exporting the final product, on which that unit will get exemption on the entire profits which include the value of the components supplied by the assessee. Probably the Legislature did not want duplicity in exemption on export profit. That is why inter- unit sales in the Export Processing Zone are not treated as export within the meaning of section 10A of the Income-tax Act, no matter such transfers are treted as exports for the purpose of Customs and ITA No.1028/Ahd/2013 M/s. Gokul Overseas vs. Asst.Year - 2009-10 -7- Excise duty exemption. When the exemption is only on actual profits derived on exports mode against receipt in convertible foreign exchange, the Tribunal, in our view, has no justification to extend it to profits received on local sales within India against payment received in Indian rupees. For the above reasons, we are unable to sustain the orders of the Tribunal and we, therefore, allow the appeals by reversing the orders of the Tribunal and by restoring the orders cancelled by the Tribunal."
Following the decision of the Hon'ble Kerala High Court in the above case, it is held that only the direct exports where the assessee brings in foreign convertible exchange into India qualify eligible export turnover for the purpose of computation of deduction u/s.10AA of the Act. The Hon'ble ITAT, Bangalore Bench had also decided the issue on the lines above in the case of Tata Elxsi Ltd. 184 (Taxman (Mag) 46. The grounds of appeal are dismissed and the decision of the AO is confirmed."
4. Aggrieved by the order of ld.CIT(A) assessee is now in appeal before us.
4.1. Before us, ld.AR reiterated the submissions made before AO and ld.CIT(A) and further submitted that ld.CIT(A) confirmed the disallowance for the reason that the exports were not direct exports where the assessee brings in convertible foreign exchange. He submitted that neither the definition of "export turnover" nor "export" u/s.10AA of the Act lays down the condition of direct exports. He further submitted that assessee having exported the goods is not disputed by AO nor the receipt of consideration in India has been disputed. Therefore, since the assessee has fulfilled the condition of exporting and receiving the consideration in India it has fulfilled the conditions laid down u/s.10AA of the Act and is ITA No.1028/Ahd/2013 M/s. Gokul Overseas vs. Asst.Year - 2009-10 -8- therefore eligible for deduction. He further submitted that if the legislature intended to exempt only direct exports, it would have specified so as was done in section 10BA of the Act which grants a deduction only for "exports out of India" and defines the same specifically in Explanation(d) by excluding the transactions not involving customs clearance. He further submitted that section 10AA of the Act does not specify that the same units should export. He submitted that ld.CIT(A) confirmed the disallowance by relying on the decision of Hon'ble Kerala High Court rendered in the case of CIT vs. Electronic Controls & Discharge Systems (P) Ltd. reported in (2011) 245 CTR 465.
He submitted that ld.CIT(A) has wrongly relied on the aforesaid decision because the decision relied upon by ld.CIT(A) dealt with section 10A and not with section 10AA and that the definition of "export turnover" are not similar in section 10A and section 10AA. He further submitted that ld.CIT(A) has also dismissed the appeal on the ground that the assessee did not bring in Convertible Foreign Exchange. He submitted that the condition of bringing in Convertible Foreign Exchange exists in the definition of export turnover u/s.10A and 10B of the Act but there is no mention of Convertible Foreign Exchange in the definition of "Export Turnover" u/s.10AA of the Act. He further submitted that sub-section(3) of section 10A and 10B specifically makes these section applicable if a sale proceeds are brought into India by the assessee in Convertible Foreign Exchange but there is no equivalent sub-section in 10AA of the ITA No.1028/Ahd/2013 M/s. Gokul Overseas vs. Asst.Year - 2009-10 -9- Act and therefore the receipt of Convertible Foreign Exchange is not a necessary condition for claiming deduction u/s.10AA of the Act. He therefore submitted that for receipts to be considered as "Export Turnover" u/s.10AA of the Act, the only conditions are that the goods or services are ultimately exported and that the consideration for export sales is received in India. In the case of the assessee in all three cases, where the AO has denied the claim of deduction u/s.10AA of the Act, the goods have left India and the consideration was received in India and therefore the conditions for "Export Turnover" were fulfilled. In his written submissions, he also placed in a tabular form the various definitions of "Export Turnover" u/s.10AA, 10A, 10B & 10BA which is reproduced hereunder:-
S.l0AA s.l0A s.l0B s.l0BA
Explanation 1 (i) Explanation 2 (iv) Explanation 2(iii) Explanation (c)
"export turnover" "export turnover" "export turnover" "export turnover"
means the consideration means the consideration means the consideration means the consideration
in respect of in respect of in respect of in respect of
export by the export by the export by the export by the
undertaking, being the undertaking of undertaking of undertaking of
Unit of articles or articles or things or articles or things or eligible articles or
things or computer software computer software things received in,
services received in, received in, or received in, or or brought into, India
or brought into, brought into, India by brought into, India by by the assessee
India by the the assessee in the assessee in in convertible
assessee but does convertible convertible
not include freight,
telecommunication
foreign exchange
ITA No.1028/Ahd/2013
M/s. Gokul Overseas vs.
Asst.Year - 2009-10
- 10 -
charges or insurance foreign exchange foreign exchange in
attributable to the in in accordance with sub-
delivery of the articles accordance with sub- accordance with sub- section (3), but
or things outside India section (3), but section (3), but does not include
or expenses, if any, does not does not freight,
incurred in foreign include freight, include freight, telecommunication
exchange in rendering telecommunication telecommunication charges or insurance
of services (including charges or insurance charges or insurance attributable to the
computer software) attributable to the attributable to the delivery of the articles
outside India; delivery of the articles delivery of the articles or things outside India;
or things or computer or things or computer
software outside India software outside India
or expenses, if any, or expenses, if any,
incurred in foreign incurred in foreign
exchange in providing exchange in providing
the technical services the technical services
outside India; outside India;
Explanation 1 (ii) Explanation (d)
"export in Term "Export" not Term "Export" not "export out of India"
relation to the Special defined. defined. shall not include any
Economic Zones" transaction by way of
means taking goods or sale or otherwise, in a
providing services out shop, emporium or any
of India from a Special other establishment
Economic Zone by situate in India, not
land, sea, air, or by any involving clearance of
other mode, whether any customs station as
physical or otherwise; defined in the Customs
Act, 1962 (52 of 1962).
4.2. He therefore submitted that the assessee be allowed deduction on the export sale as support manufacturer, sales to export oriented units and sales in "SEZ".
ITA No.1028/Ahd/2013M/s. Gokul Overseas vs. Asst.Year - 2009-10
- 11 -
4.3. The ld.Sr.DR, on the other hand, supported the orders of lower authorities.
5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The issue in the present case is whether the export sales as supporting manufacturer, Sales to EOUs and SEZs are eligible for deduction u/s.10AA of the Act. Section 10AA of the Act provides for deduction of 100% of the profits and gains derived from export of articles or things or from services for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the unit begins to manufacture or produce such articles or things or provides services, as the case may be. It also provides for 50% of profits and gains for five assessment years thereafter. As per clause (7) the profits derived from the export of article or things or services shall be the amount which bears to the profits of the business of the undertaking, being the unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on by the undertaking. As per Explanation 1(1) to s. 10AA, "export turnover"
means the consideration in respect of export by the assessee but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things outside India or expenses, if any, incurred in foreign exchange in rendering of services outside India. In ITA No.1028/Ahd/2013 M/s. Gokul Overseas vs. Asst.Year - 2009-10
- 12 -
our understanding, on reading of sub section 7 along with the Explanation 1, the deduction u/s 10AA, apart from fulfilling of the other required conditions stipulated, the deduction of profits from exports u/s 10AA will be in the ratio of export turnover to the total turnover of the undertaking. We further find that the bringing in India the foreign currency on sale of goods has not been stipulated in "export turnover"
though as per provisions of s. 10A, which in respect of special provision in respect of newly established undertaking in Free Trade Zone, Explanation 2(iv) the "export turnover" specifies the condition of bringing into India convertible foreign exchange. Similarly we find that "export turnover" in s. 10B (which is special provision in respect of newly established hundred percent export oriented undertaking) and in S.10BA (which is Special provision in respect of export of certain articles or things) stipulates the bringing into India by the Assessee of convertible foreign exchange.
5.1 In the present case, the goods have left India and consideration on sale of such goods having being received in India is not in dispute and in such a situation we are of the view that denial of deduction u/s 10AA of the Act is uncalled for more so, when as S.10AA of the Act does not provide for export of own goods or bringing in of foreign currency of the goods exported. We further find that Ld CIT(A) has relied on the decision of Hon'ble Kerala High Court in the case of Electronics Control ITA No.1028/Ahd/2013 M/s. Gokul Overseas vs. Asst.Year - 2009-10
- 13 -
and Discharge Systems Pvt. Ltd. 245 CTR 465 in coming to the conclusion that only direct exports where the assessee brings foreign convertible exchange into India qualifies for being eligible export turnover for the purpose of computing deduction u/s 10AA of the Act. We find that Hon'ble Kerala High Court in the aforesaid case was dealing with the provision of s. 10A and not with respect to s.10AA and in view of the difference in the definition of "export turnover" in both the sections, we are of the view that the aforesaid decision of Hon'ble Kerala High Court cannot be relied by the Revenue authorities for denying the deduction to assessee. Before us, Revenue has not placed any other direct decision where the issue related to provisions of S.10AA in its support. In view of the aforesaid facts, we set aside the order of Ld CIT(A) and thus allow the ground of Assessee.
6. In the result the appeal of Assessee is allowed.
This Order pronounced in Open Court on 30/08/2016
Sd/- Sd/-
राजपाल यादव अ नल चतव
ु द
( या यक सद य) (लेख ा सद य)
(RAJPAL YADAV) ( ANIL CHATURVEDI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 30/ 08 /2016
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
ITA No.1028/Ahd/2013
M/s. Gokul Overseas vs.
Asst.Year - 2009-10
- 14 -
आदे श क ! त#ल$प अ%े$षत/Copy of the Order forwarded to :
1. अपीलाथ& / The Appellant
2. '(यथ& / The Respondent.
3. संबं5धत आयकर आयु7त / Concerned CIT
4. आयकर आयु7त(अपील) / The CIT(A)-Gandhinagar
5. 8वभागीय ' त न5ध, आयकर अपील य अ5धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स(या8पत ' त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 21.7.16 (dictation-pad 10 pages attached at the end of this appeal-file)
2. Date on which the typed draft is placed before the Dictating Member ...1.8.2016/18.8.16
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......30.8.16
7. Date on which the file goes to the Bench Clerk.....................30.8.16
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................